With the nine-block Power & Light entertainment district under development, along with the 20,000-seat Sprint Arena and the new Kauffman Center for the Performing Arts, Kansas City’s downtown is experiencing a $4.5 billion urban renaissance. That revival has sparked a fire in the city’s multifamily market, attracting developers, investors, and residents to an area that had long been ignored.
“There wasn’t much life in downtown from the 1960s to the 1990s, and we saw our downtown population fall to less than 10,000,” recalled Bob Schock, a senior vice president at The Yarco Co., a Kansas City, Mo.-based firm that manages 6,500 rental units in the metro area. “With all the new development, we’re creating a lifestyle that we’ve never had before. It’s new and exciting for Kansas City, and people want to be involved in it.”
Perfect timing
Residential construction in the urban core jumped to $255.1 million in 2005 from $28.5 million in 2000, nearly a tenfold increase, according to Linda Peroff, a senior vice president in the Kansas City office of Colliers Turley Martin Tucker, a regional real estate brokerage. About 15,000 residents are now living in the City’s urban core, and thousands more are expected to flood into the revitalized downtown over the next five years.
“A recent survey suggested that some 20,000 people working downtown but living elsewhere would consider moving downtown,” Peroff said, adding that more than 1,630 condos and lofts have been built downtown since 2000, and 2,600 more are in the works.
New York-based Time Equities, Inc., is one developer that has added to Kansas City’s condo inventory. The firm renovated a dilapidated 12-story apartment building in the heart of downtown into an upscale project called Metropolitan Condominiums.
The 238-unit Metropolitan Condominiums is Time Equities’ first project in Kansas City, said acquisitions and development director Phillip Gesue. “We really were impressed with the city—it’s architecturally charming and fairly affluent with a good standard of living,” he said. “We just saw a lot of potential in downtown, and we thought it was fairly low risk because of the price of assets.”
Priced at $69,000 to $300,000, 90 percent of the building’s condominiums have sold, Gesue said. The project has been such a success that Time Equities is looking for more residential opportunities in downtown (it recently purchased a 700,000-square-foot office building).
“KC is now booming from a residential standpoint,” said Gesue. “We think there’s going to be a big pop in demand in another 12 months.”
Keeping up with Johnson County
Kansas City’s steady population and job growth puts its multifamily market in a good position, said Rob Treleven, a senior vice president with Countrywide Commercial’s Kansas City office.
Unlike many Midwestern cities, Kansas City, with a metropolitan area made up of 15 counties in two states, has actually grown. Over the past five years, the city has added more than 40,000 new jobs and 100,000 new residents, reaching a population of nearly 2 million, according to Reis, Inc., a New York-based research firm.
“For the first time that I can remember, unprecedented growth is occurring virtually everywhere across the metro area,” Peroff said.
For the first time since 2003, the marketwide vacancy rate fell below 7.8 percent at the end of 2005, when it dropped to 7.5 percent, according to Reis. Rental rates have been relatively flat since 2002, but it looks like 2006 might provide a slight bump of 1 percent.
Of all the submarkets, Johnson County, Kansas, is the healthiest. With 6.4 percent job growth in 2005, Johnson County boasted one of the highest average incomes in the United States. The county’s population also grew 6.4 percent, according to Peroff of Colliers Turley.
“Johnson County continues to be the powerhouse market in terms of development, occupancy, and rents,” she said. As of mid-2006, occupancy in the area was 95 percent and rents averaged 78 cents per square foot, two cents above the metrowide average.
AMLI Residential Trust is one of the biggest owners in Johnson County, with four properties totaling 1,500 units concentrated in the Overland Park submarket. The real estate investment trust’s (REIT) Kansas City portfolio is more than 95 percent occupied, according to regional manager Lenora Carpenter.
“We’re really excited because we’ve been able to raise market rents 5.25 percent year-to-date, and our effective rents have grown 3.7 percent,” Carpenter said.
The REIT recently finished construction on a new Class A property in Johnson County. Called AMLI at Clear Creek, the 288-unit complex was 21 percent occupied as of mid-October, with stabilization expected mid-2007.
Occupancy and rental rates are expected to increase in 2007 as a result of slowing development activity, said Todd Vitzthum, a senior adviser with national brokerage firm Sperry Van Ness. “The level of multifamily building permits in the KC market is the lowest it’s been since 1996,” he pointed out, adding that this year he has represented California-based investors in the acquisition of four apartment properties in Kansas City.
“The supply-demand ratio provides a wonderful opportunity for investors,” said Aandrea Carter, president of The Carter Group, Inc., a Kansas City-based apartment owner and broker. In fact, Kansas City’s apartment inventory is not expected to grow by more than 2 percent over the next five years, according to Reis.
“The lack of construction, combined with increased demand and the opportunity to raise rents, makes the outlook for 2007 our best this decade,” Schock said.
